Having poor credit is bad enough. Between being limited to credit cards for people with bad credit and getting unfavorable terms on loans, there are plenty of legitimate reasons to be concerned about a low score.
Unfortunately, relying on misinformation can keep people with substandard credit from taking steps to improve it, or from getting the best deals possible on loans and credit cards. Have you fallen for one of these bad credit myths?
Myth 1: All credit inquiries damage your score.
Monitoring your credit score is a great idea, and it won’t damage your credit. As long as you pull a report from each credit bureau only once a year—or if you’re denied a job because of your credit—it’s free to access.
The kinds of inquiries lenders engage in when deciding whether or not to give you credit can have a temporary negative effect on your score. But don’t let this discourage you from shopping around for loans. As long as your auto or home loan applications take place within a short period of time, such as 14 days, the inquiries will all count as one, according to the Consumer Financial Protection Bureau.
Myth 2: Credit repair agencies are a good way to improve your credit.
If your credit could be better, you may have been tempted by companies promising to strike negative items from your credit report. Don’t believe them. Unless information is incorrect or outdated, there’s no way to have it removed, and any true errors a credit repair agency can fix, you can also find and dispute yourself—for free.
Myth 3: Paid debts are removed from your credit report.
Settling an old bill is a great step toward financial security, and can provide a welcome respite from collections calls. However, even paid debts can impact on your credit. Lenders report most negative information—like late payments—to credit bureaus for seven years and report bankruptcies for ten. You can ask your lender to stop reporting on a paid account, but there’s no guarantee they’ll say yes.
Myth 4: You can’t get a loan with poor credit.
There’s no question that having good credit is a plus when applying for loans. You’ll have your pick of lenders and receive favorable rates. But having bad credit doesn’t mean that you won’t get a loan—just that you might have to work harder for it.
Try applying for a loan at a bank or credit union at which you already have an account. Credit unions in particular tend to be flexible. If you can make a large down payment or if your credit is on the mend, you may have some room to negotiate. Just watch out for lenders offering unrealistic terms—they’re probably too good to be true.
The bottom line
No one needs good credit card information more than people who struggle with credit. So if you’re hoping to graduate from your bad credit credit card, make sure you’re going to the right sources for your facts. Government agencies like Federal Trade Commission and the FDIC are great places to start your research. And if a credit repair company is trying to get your business, look them up on the Better Business Bureau before handing over your money.
Image via iStock.
The post 4 Bad Credit Myths appeared first on NerdWallet Credit Card Blog.
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